Kinsale Capital Group, Inc. (NYSE: KNSL) reported net income of
$103.4 million, $4.43 per diluted share, for the fourth quarter of
2023 compared to $67.2 million, $2.90 per diluted share, for the
fourth quarter of 2022. Net income was $308.1 million, $13.22 per
diluted share, for the year ended December 31, 2023 compared to
$159.1 million, $6.88 per diluted share, for the year ended
December 31, 2022. For both the fourth quarters of 2023 and 2022,
the impact on net income related to catastrophes was negligible.
For the years ended December 31, 2023 and 2022, net income included
after-tax catastrophe losses of $3.6 million and $21.0 million,
respectively.
Net operating earnings(1) were $90.3 million, $3.87 per diluted
share, for the fourth quarter of 2023 compared to $60.3 million,
$2.60 per diluted share, for the fourth quarter of 2022. Net
operating earnings(1) were $291.4 million, $12.50 per diluted
share, for the year ended December 31, 2023 compared to $180.4
million, $7.80 per diluted share, for the year ended December 31,
2022.
Highlights for the fourth quarter of 2023 included:
- Net income increased by 53.7% compared to the fourth quarter of
2022
- Net operating earnings(1) of $90.3 million increased by 49.6%
compared to the fourth quarter of 2022
- Gross written premiums increased by 33.8% to $395.2 million
compared to the fourth quarter of 2022
- Net investment income increased by 71.2% to $30.4 million
compared to the fourth quarter of 2022
- Underwriting income(2) was $84.8 million in the fourth quarter
of 2023, resulting in a combined ratio(5) of 72.1%
Highlights for the full year of 2023 included:
- Net income increased by 93.6% compared to the full year of
2022
- Net operating earnings(1) of $291.4 million increased by 61.6%
compared to the full year of 2022
- Gross written premiums increased by 42.3% to $1.6 billion
compared to the full year of 2022
- Net investment income increased by 99.6% to $102.3 million
compared to the full year of 2022
- Underwriting income(2) was $270.4 million for the year ended
December 31, 2023, resulting in a combined(5) ratio of 75.4%
- Operating return on equity(7) was 31.8% for the year ended
December 31, 2023
"We generated record growth and profitability in 2023 by
executing our business plan and capitalizing on favorable E&S
market conditions. These results demonstrate our ability to deliver
exceptional shareholder returns as we continue to focus on
disciplined underwriting and technology-enabled expense management.
We are confident that the execution of our differentiated strategy
provides an enduring competitive advantage," said Chief Executive
Officer, Michael P. Kehoe.
Results of Operations
Underwriting Results
Gross written premiums were $395.2 million for the fourth
quarter of 2023 compared to $295.5 million for the fourth quarter
of 2022, an increase of 33.8%. Gross written premiums were $1.6
billion for the year ended December 31, 2023 compared to $1.1
billion for the year ended December 31, 2022, an increase of 42.3%.
Growth in gross written premiums during the fourth quarter and year
ended December 31, 2023 over the same periods last year reflected
strong submission flow from brokers and a favorable pricing
environment.
Underwriting income(2) was $84.8 million, resulting in a
combined ratio of 72.1%, for the fourth quarter of 2023, compared
to $59.5 million, and a combined ratio of 73.1% for the same period
last year. The increase in underwriting income(2) for the fourth
quarter of 2023 was due to a combination of premium growth, rate
increases, favorable loss experience, lower net commissions and
scale. Loss(3) and expense(4) ratios were 52.2% and 19.9%,
respectively, for the fourth quarter of 2023 compared to 51.3% and
21.8% for the fourth quarter of 2022. Favorable development of
reserves from prior accident years was $7.2 million, or 2.3 points,
for the fourth quarter of 2023, and $7.0 million, or 3.2 points,
for the fourth quarter of 2022.
Underwriting income(2) was $270.4 million, resulting in a
combined ratio of 75.4%, for the year ended December 31, 2023,
compared to $175.5 million, and a combined ratio of 78.5% for the
prior year. The increase in underwriting income(2) for the year
ended December 31, 2023 was due to a combination of premium growth,
rate increases, favorable loss experience and lower net
commissions. Loss(3) and expense(4) ratios were 54.6% and 20.8%,
respectively, for the year ended December 31, 2023 compared to
56.3% and 22.2%, respectively, for the year ended December 31,
2022. The loss ratios included current accident year catastrophe
losses of $4.6 million, or 0.4 points, for the year ended December
31, 2023 and $26.6 million, or 3.3 points, for the year ended
December 31, 2022. Favorable development of reserves from prior
accident years was $35.8 million, or 3.2 points, for the year ended
December 31, 2023 and $35.9 million, or 4.4 points, for the year
ended December 31, 2022.
Summary of Operating Results
The Company’s operating results for the three months and year
ended December 31, 2023 and 2022 are summarized as follows:
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
($ in thousands)
Gross written premiums
$
395,216
$
295,467
$
1,568,815
$
1,102,092
Ceded written premiums
(88,937
)
(53,397
)
(304,185
)
(165,282
)
Net written premiums
$
306,279
$
242,070
$
1,264,630
$
936,810
Net earned premiums
$
296,831
$
216,140
$
1,072,537
$
794,119
Fee income
6,998
5,241
27,026
19,604
Losses and loss adjustment expenses
158,591
113,580
600,219
457,913
Underwriting, acquisition and insurance
expenses
60,403
48,297
228,970
180,322
Underwriting income(2)
$
84,835
$
59,504
$
270,374
$
175,488
Loss ratio(3)
52.2
%
51.3
%
54.6
%
56.3
%
Expense ratio(4)
19.9
%
21.8
%
20.8
%
22.2
%
Combined ratio(5)
72.1
%
73.1
%
75.4
%
78.5
%
Annualized return on equity(6)
41.1
%
39.4
%
33.6
%
22.0
%
Annualized operating return on
equity(7)
35.9
%
35.4
%
31.8
%
25.0
%
(1)
Net operating earnings is a
non-GAAP financial measure. See discussion of "Non-GAAP Financial
Measures" below.
(2)
Underwriting income is a non-GAAP
financial measure. See discussion of "Non-GAAP Financial Measures"
below.
(3)
Loss ratio, expressed as a
percentage, is the ratio of losses and loss adjustment expenses to
the sum of net earned premiums and fee income. Prior periods have
been revised to conform to the current period's presentation.
(4)
Expense ratio, expressed as a
percentage, is the ratio of underwriting, acquisition and insurance
expenses to the sum of net earned premiums and fee income. Prior
periods have been revised to conform to the current period's
presentation.
(5)
The combined ratio is the sum of
the loss ratio and expense ratio as presented. Calculations of each
component may not add due to rounding. Prior periods have been
revised to conform to the current period's presentation.
(6)
Annualized return on equity is
net income expressed on an annualized basis as a percentage of
average beginning and ending stockholders’ equity during the
period.
(7)
Annualized operating return on
equity is net operating earnings (a non-GAAP financial measure)
expressed on an annualized basis as a percentage of average
beginning and ending stockholders’ equity during the period.
The following tables summarize losses incurred for the current
accident year and the development of prior accident years for the
three months and year ended December 31, 2023 and 2022:
Three Months Ended
December 31, 2023
Three Months Ended
December 31, 2022
Losses and
Loss
Adjustment
Expenses
% of Sum of
Earned
Premiums and
Fee Income
Losses and
Loss
Adjustment
Expenses
% of Sum of
Earned
Premiums and
Fee Income
Loss ratio:
($ in thousands)
Current accident year
$
165,351
54.4
%
$
120,212
54.3
%
Current accident year - catastrophe
losses
407
0.1
%
405
0.2
%
Effect of prior accident year
development
(7,167
)
(2.3
)%
(7,037
)
(3.2
)%
Total
$
158,591
52.2
%
$
113,580
51.3
%
Year Ended
December 31, 2023
Year Ended
December 31, 2022
Losses and
Loss
Adjustment
Expenses
% of Sum of
Earned
Premiums and
Fee Income
Losses and
Loss
Adjustment
Expenses
% of Sum of
Earned
Premiums and
Fee Income
Loss ratio:
($ in thousands)
Current accident year
$
631,407
57.4
%
$
467,182
57.4
%
Current accident year - catastrophe
losses
4,586
0.4
%
26,618
3.3
%
Effect of prior accident year
development
(35,774
)
(3.2
)%
(35,887
)
(4.4
)%
Total
$
600,219
54.6
%
$
457,913
56.3
%
Investment Results
Net investment income was $30.4 million in the fourth quarter of
2023 compared to $17.7 million in the fourth quarter of 2022, an
increase of 71.2%. Net investment income was $102.3 million for the
full year of 2023 compared to $51.3 million for the full year of
2022, and increase of 99.6%. These increases were driven by growth
in the Company's investment portfolio generated primarily from the
investment of strong operating cash flows since December 31, 2022
and higher interest rates relative to the prior year periods. Net
operating cash flows were $859.8 million for the full year of 2023
compared to $557.8 million for the full year of 2022, an increase
of 54.1%. The Company’s investment portfolio, excluding cash and
cash equivalents, had a gross investment return(8) of 4.0% for the
year ended December 31, 2023 compared to 3.0% for the year ended
December 31, 2022. Funds are generally invested conservatively in
high quality securities, including government agency, asset- and
mortgage-backed securities, and municipal and corporate bonds with
an average credit quality of "AA-." The weighted average duration
of the fixed-maturity investment portfolio, including cash
equivalents, was 2.8 years and 3.5 years at December 31, 2023 and
2022, respectively. Cash and invested assets totaled $3.1 billion
at December 31, 2023 compared to $2.2 billion at December 31,
2022.
(8)
Gross investment return is
investment income from fixed-maturity and equity securities (and
short-term investments, if any), before any deductions for fees and
expenses, expressed as a percentage of average beginning and ending
book values of those investments during the period.
Other
The effective tax rate for the year ended December 31, 2023 was
19.8%. The effective tax rate was lower than the federal statutory
rate primarily due to the tax benefits from stock-based
compensation and tax-exempt investment income.
Stockholders' equity was $1.1 billion at December 31, 2023,
compared to $745.4 million at December 31, 2022. Book value per
share was $46.88 at December 31, 2023 compared to $32.28 at
December 31, 2022. Operating return on equity was 31.8% for the
full year of 2023, an increase from 25.0% for the full year of
2022. This increase was primarily due to continued profitable
growth from favorable E&S market conditions and rate
increases.
Beginning in the second quarter of 2023, the Company
reclassified policy fees to fee income and modified the definition
of the loss and expense ratios to include fee income in the
denominator of each ratio. Historically, these fees were presented
as a reduction to underwriting, acquisition and insurance expenses.
The Company has reclassified prior periods' results to conform to
the current period's presentation.
Non-GAAP Financial Measures
Net Operating Earnings
Net operating earnings is defined as net income excluding the
effects of the change in the fair value of equity securities, after
taxes, net realized investment gains and losses, after taxes, and
the change in allowance for credit losses on investments, after
taxes. Management believes the exclusion of these items provides a
useful comparison of the Company's underlying business performance
from period to period. Net operating earnings and percentages or
calculations using net operating earnings (e.g., diluted operating
earnings per share and annualized operating return on equity) are
non-GAAP financial measures. Net operating earnings should not be
viewed as a substitute for net income calculated in accordance with
GAAP, and other companies may define net operating earnings
differently.
For the three months and year ended December 31, 2023 and 2022,
net income and diluted earnings per share reconcile to net
operating earnings and diluted operating earnings per share as
follows:
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
($ in thousands, except per
share data)
Net operating earnings:
Net income
$
103,387
$
67,249
$
308,093
$
159,114
Adjustments:
Change in the fair value of equity
securities, before taxes
(11,481
)
(9,476
)
(15,277
)
27,723
Income tax expense (benefit) (1)
2,411
1,990
3,208
(5,822
)
Change in fair value of equity securities,
after taxes
(9,070
)
(7,486
)
(12,069
)
21,901
Net realized investment (gains) losses,
before taxes
(5,127
)
344
(6,040
)
(1,191
)
Income tax expense (benefit) (1)
1,077
(72
)
1,268
250
Net realized investment (gains) losses,
after taxes
(4,050
)
272
(4,772
)
(941
)
Change in allowance for credit losses on
investments, before taxes
(12
)
366
187
366
Income tax (benefit) expense (1)
3
(77
)
(39
)
(77
)
Change in allowance for credit losses on
investments, after taxes
(9
)
289
148
289
Net operating earnings
$
90,258
$
60,324
$
291,400
$
180,363
Diluted operating earnings per
share:
Diluted earnings per share
$
4.43
$
2.90
$
13.22
$
6.88
Change in fair value of equity securities,
after taxes, per share
(0.39
)
(0.32
)
(0.52
)
0.95
Net realized investment (gains) losses,
after taxes, per share
(0.17
)
0.01
(0.20
)
(0.04
)
Change in allowance for credit losses on
investments, after taxes, per share
—
0.01
0.01
0.01
Diluted operating earnings per
share(2)
$
3.87
$
2.60
$
12.50
$
7.80
Operating return on equity:
Average equity(3)
$
1,005,297
$
682,452
$
916,141
$
722,392
Annualized return on equity(4)
41.1
%
39.4
%
33.6
%
22.0
%
Annualized operating return on
equity(5)
35.9
%
35.4
%
31.8
%
25.0
%
(1)
Income taxes on adjustments to
reconcile net income to net operating earnings use a 21% effective
tax rate.
(2)
Diluted operating earnings per
share may not add due to rounding.
(3)
Average equity is computed by
adding the total stockholders' equity as of the date indicated to
the prior quarter-end or year-end total, as applicable, and
dividing by two.
(4)
Annualized return on equity is
net income expressed on an annualized basis as a percentage of
average beginning and ending stockholders’ equity during the
period.
(5)
Annualized operating return on
equity is net operating earnings expressed on an annualized basis
as a percentage of average beginning and ending stockholders’
equity during the period.
Underwriting Income
Underwriting income is defined as net income excluding net
investment income, the change in the fair value of equity
securities, net realized investment gains and losses, the change in
allowance for credit losses on investments, interest expense, other
expenses, other income and income tax expense. The Company uses
underwriting income as an internal performance measure in the
management of its operations because the Company believes it gives
management and users of the Company's financial information useful
insight into the Company's results of operations and underlying
business performance. Underwriting income should not be viewed as a
substitute for net income calculated in accordance with GAAP, and
other companies may define underwriting income differently.
For the three months and year ended December 31, 2023 and 2022,
net income reconciles to underwriting income as follows:
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
(in thousands)
Net income
$
103,387
$
67,249
$
308,093
$
159,114
Income tax expense
26,634
16,901
75,924
36,450
Income before income taxes
130,021
84,150
384,017
195,564
Net investment income
(30,382
)
(17,742
)
(102,335
)
(51,282
)
Change in fair value of equity
securities
(11,481
)
(9,476
)
(15,277
)
27,723
Net realized investment (gains) losses
(5,127
)
344
(6,040
)
(1,191
)
Change in allowance for credit losses on
investments
(12
)
366
187
366
Interest expense
2,434
1,978
10,301
4,284
Other expenses (6)
(278
)
200
942
721
Other income
(340
)
(316
)
(1,421
)
(697
)
Underwriting income
$
84,835
$
59,504
$
270,374
$
175,488
(6)
Other expenses are corporate
expenses not allocated to the Company's insurance operations.
Conference Call
Kinsale Capital Group will hold a conference call to discuss
this press release on Friday, February 16, 2024, at 9:00 a.m.
(Eastern Time). Members of the public may access the conference
call by dialing (888) 660-6493, conference ID# 3573726, or via the
Internet by going to www.kinsalecapitalgroup.com and clicking on
the "Investor Relations" link. A replay of the call will be
available on the website until the close of business on March 15,
2024.
Forward-Looking Statements
This press release contains forward-looking statements as that
term is defined in the Private Securities Litigation Reform Act of
1995. In some cases, such forward-looking statements may be
identified by terms such as "anticipates," "estimates," "expects,"
"intends," "plans," "predicts," "projects," "believes," "seeks,"
"outlook," "future," "will," "would," "should," "could," "may,"
"can have," "prospects" or similar words. Forward-looking
statements involve risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking
statements. Although it is not possible to identify all of these
risks and factors, they include, among others, the following:
inadequate loss reserves to cover the Company's actual losses;
inherent uncertainty of models resulting in actual losses that are
materially different than the Company's estimates; adverse economic
factors; a decline in the Company's financial strength rating; loss
of one or more key executives; loss of a group of brokers that
generate significant portions of the Company's business; failure of
any of the loss limitations or exclusions the Company employs, or
change in other claims or coverage issues; adverse performance of
the Company's investment portfolio; adverse market conditions that
affect its excess and surplus lines insurance operations; and other
risks described in the Company's filings with the Securities and
Exchange Commission. These forward-looking statements speak only as
of the date of this release and the Company does not undertake any
obligation to update or revise any forward-looking information to
reflect changes in assumptions, the occurrence of unanticipated
events, or otherwise.
About Kinsale Capital Group, Inc.
Kinsale Capital Group, Inc. is a specialty insurance group
headquartered in Richmond, Virginia, focusing on the excess and
surplus lines market.
KINSALE CAPITAL GROUP, INC.
AND SUBSIDIARIES
Unaudited Consolidated
Statements of Income and Comprehensive Income
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
Revenues
(in thousands, except per
share data)
Gross written premiums
$
395,216
$
295,467
$
1,568,815
$
1,102,092
Ceded written premiums
(88,937
)
(53,397
)
(304,185
)
(165,282
)
Net written premiums
306,279
242,070
1,264,630
936,810
Change in unearned premiums
(9,448
)
(25,930
)
(192,093
)
(142,691
)
Net earned premiums
296,831
216,140
1,072,537
794,119
Fee income
6,998
5,241
27,026
19,604
Net investment income
30,382
17,742
102,335
51,282
Change in fair value of equity
securities
11,481
9,476
15,277
(27,723
)
Net realized investment gains (losses)
5,127
(344
)
6,040
1,191
Change in allowance for credit losses on
investments
12
(366
)
(187
)
(366
)
Other income
340
316
1,421
697
Total revenues
351,171
248,205
1,224,449
838,804
Expenses
Losses and loss adjustment expenses
158,591
113,580
600,219
457,913
Underwriting, acquisition and insurance
expenses
60,403
48,297
228,970
180,322
Interest expense
2,434
1,978
10,301
4,284
Other expenses
(278
)
200
942
721
Total expenses
221,150
164,055
840,432
643,240
Income before income taxes
130,021
84,150
384,017
195,564
Income tax expense
26,634
16,901
75,924
36,450
Net income
103,387
67,249
308,093
159,114
Other comprehensive income
(loss)
Change in unrealized gains (losses) on
available-for-sale investments, net of taxes
60,410
12,421
40,301
(153,043
)
Total comprehensive income
$
163,797
$
79,670
$
348,394
$
6,071
Earnings per share:
Basic
$
4.48
$
2.94
$
13.37
$
6.97
Diluted
$
4.43
$
2.90
$
13.22
$
6.88
Weighted-average shares
outstanding:
Basic
23,071
22,909
23,045
22,815
Diluted
23,320
23,208
23,307
23,125
KINSALE CAPITAL GROUP, INC.
AND SUBSIDIARIES
Unaudited Condensed
Consolidated Balance Sheets
December 31, 2023
December 31, 2022
(in thousands)
Assets
Investments:
Fixed-maturity securities at fair
value
$
2,711,759
$
1,760,100
Equity securities at fair value
234,813
152,471
Real estate investments, net
14,791
76,387
Short-term investments
5,589
41,337
Total investments
2,966,952
2,030,295
Cash and cash equivalents
126,694
156,274
Investment income due and accrued
21,689
14,451
Premiums receivable, net
143,212
105,754
Reinsurance recoverables, net
247,836
220,454
Ceded unearned premiums
52,516
42,935
Deferred policy acquisition costs, net of
ceding commissions
88,395
61,594
Indefinite-lived intangible assets
3,538
3,538
Deferred income tax asset, net
55,699
56,983
Other assets
66,443
54,844
Total assets
$
3,772,974
$
2,747,122
Liabilities & Stockholders'
Equity
Liabilities:
Reserves for unpaid losses and loss
adjustment expenses
$
1,692,875
$
1,238,402
Unearned premiums
701,351
499,677
Payable to reinsurers
47,582
32,024
Accounts payable and accrued expenses
44,922
31,361
Debt
183,846
195,747
Other liabilities
15,566
4,462
Total liabilities
2,686,142
2,001,673
Stockholders' equity
1,086,832
745,449
Total liabilities and stockholders'
equity
$
3,772,974
$
2,747,122
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240215300029/en/
Kinsale Capital Group, Inc. Bryan Petrucelli Executive Vice
President, Chief Financial Officer and Treasurer 804-289-1272
ir@kinsalecapitalgroup.com
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